Ontario Energy Minister Todd Smith addresses a news conference in Pickering, Ont. on Jan. 30.Frank Gunn/The Canadian Press
Kent Elson is an energy lawyer.
Gas customers across Ontario should be paying close attention to Bill 165, which is up for debate this week at committee hearings at Queen’s Park.
Among other measures, the bill incentivizes new natural gas infrastructure by subsidizing the costs for developers. By doing so, the bill will not only raise gas rates for customers today, it also creates huge risks that will leave energy customers swamped in debt and undermine Ontario’s industrial competitiveness in the coming decades.
All that doesn’t even touch upon the serious political issues behind the bill: Energy Minister Todd Smith is directly overruling an independent regulator that had blocked such a practice for Enbridge Gas. (I represented Environmental Defence, an intervenor, in that hearing.)
Bill 165 deals with what is commonly known as natural gas – a potent fossil fuel that is more accurately referred to as methane gas. A third of Ontario’s carbon emissions come from burning methane gas. We need to stop burning it, and fast, but Bill 165 makes the risky assumption that methane gas use can keep increasing, in direct opposition to steep declines projected by the federal government and climate science.
Bill 165 is called the Keeping Energy Costs Down Act – part of a sad trend in dishonest naming, as it will increase energy costs. Most importantly, the bill will reinstate free or highly discounted methane gas pipelines for new developments, subsidies that were slated to end in January, 2025. Reinstating those subsidies will cost more than $250-million a year, which will be added to the accumulated capital costs that all customers are paying off via their gas bills. If you own a gas furnace in Ontario, you will be subsidizing the cost of installing pipelines to and throughout residential developments.
Getting existing customers off methane gas is a challenging project for all provinces as we fight climate change. But for new construction, it is a no-brainer. Although heat pumps are somewhat more expensive upfront, that is not the case if you account for the cost of the methane pipes in new developments. That is one reason why New York State and many other jurisdictions are banning gas in new developments.
Ontario is doing the opposite by hugely incentivizing methane gas pipelines for developers. This will saddle new homebuyers with higher energy bills, because electric heat pumps cost much less to operate than gas furnaces. And if we build 1.5 million houses by 2031, as Ontario plans to do, mostly heated with gas, the costs and financial risks associated with all those new gas pipelines are huge.
This is financial insanity. Gas pipelines are paid off over roughly 60 years (i.e. depreciated), so a pipeline built today will be paid off in the 2080s. This is long beyond the point at which fossil fuel use is set to drastically decline. Investments in new gas pipelines today will almost certainly go bad, and Bill 165 forces Ontario’s gas customers to make that bad investment.
As customers increasingly leave the gas system through electrification, the remaining ones must pay more to cover the accumulated capital costs, which will raise rates, causing more customers to leave, which will raise rates further, and so on. Energy wonks call this a death spiral.
In a Dec. 21 decision regarding Enbridge’s rates, the Ontario Energy Board found that funding gas pipelines in new construction was a bad investment for Ontario’s gas customers. That finding was based on a year-long hearing, many expert witnesses and tens of thousands of pages of evidence.
This is the decision Mr. Smith is now overturning with Bill 165.
Enbridge ENB-T has been lobbying the government to follow through with Bill 165 (despite opposition from municipalities and ratepayer groups) and take additional steps to overturn a $250-million annual capital budget reduction resulting from the OEB’s Dec. 21 decision. It has been arguing that the decision “sets a deliberate course to eliminate natural gas from Ontario’s energy mix.”
The opposite is true: The decision aims to avoid bad investments and maintain the affordability of gas as an important part of Ontario’s energy mix during the energy transition.
The OEB’s mandate is to protect energy consumers. That is exactly what it did with its recent decision – and exactly what the government is undoing with Bill 165.
Enbridge has won through government lobbying what it could not get from an evidence-based independent process. All energy customers should be very worried – especially the ones, like industry, that will find it hard to jump ship in the decades ahead.